Market Structure and the Penetration of Alternative Energy Technologies
AbstractEnergy market prices ignore external effects, hence miss-allocate energy generation between (polluting) fossil fuels and (clean) solar technologies. Correcting the failure requires understanding the market allocation forces at hand. An important feature of solar energy is that its cost of supply is predominantly due to upfront investments in capital infrastructure (rather than to the actual supply rate) and this feature has far reaching implications for the market allocation outcome. Studying the market allocation process, we specify the conditions under which solar technologies penetrate the energy sector. The framework is then used to analyze policy regulation in the form of taxing fossil energy and subsidizing investments in solar energy. The first policy measure addresses undesirable environmental effects associated with the use of fossil fuels and the second internalizes the benefits of learning by doing in the solar industry. Under certain conditions, a temporary subsidy on solar energy investments gives rise to a flourishing, self-sustained solar industry that will (eventually) drive fossil energy out of production.
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Bibliographic InfoPaper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 47174.
Date of creation: 31 Jan 2009
Date of revision:
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Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
Web page: http://departments.agri.huji.ac.il/economics/indexe.html
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energy; solar technologies; fossil fuels; price thresholds; regulation; environmental damage; learning by doing; Resource /Energy Economics and Policy; Marketing; C61; Q42; Q58;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-02 (All new papers)
- NEP-ENE-2009-05-02 (Energy Economics)
- NEP-REG-2009-05-02 (Regulation)
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- Daiju Narita, 2010. "Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy," Kiel Working Papers 1590, Kiel Institute for the World Economy.
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